A beginner’s guide to Derivatives

This guidance note sets out a basic introduction to derivatives focussing on the below and directs you to more detailed commentary on each topic:

• • what a derivative is;
• • how to document and negotiate an over-the-counter (OTC) derivative;
• • the different types of derivative structures;
• • how derivatives are used in lending transactions;
• • how derivatives are cleared and settled;
• • margin requirements for uncleared OTC derivatives;
• • the different types of collateral and credit support used in OTC derivative transactions; and
• • termination of financial derivatives.

A good understanding of the derivatives market and the relevant documentation is important for any practitioner involved with derivatives particularly OTC derivatives not traded through a Central Counterpart ie uncleared OTC derivatives. Membership of the International Swaps and Derivatives Association (ISDA) is recommended to be able to access up to date information, opinions and standard documentation among others in relation to derivatives.

See guidance note A beginner’s guide to Derivatives.